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Preparation of Eurogroup and Economic and Finance Ministers Council, Brussels, 7 and 8 May 2007

European Commission - MEMO/07/166   07/05/2007

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MEMO/07/166

Brussels, 7 May 2007

Preparation of Eurogroup and Economic and Finance Ministers Council, Brussels, 7 and 8 May 2007

EUROGROUP (AT)

Eurogroup ministers will meet at 17:00 hrs on Monday 7 May. Joaquín Almunia, Commissioner responsible for Economic and Monetary Affairs will attend as will European Central Bank Governor Jean-Claude Trichet.

Ministers will discuss the economic situation and outlook on the basis of the spring economic forecasts released by the Commission today

The euro area economy is expected to grow by 2.6% in 2007 and 2.5% in 2008 (2.9% and 2.7%, respectively, in the European Union) on the back of solid investment and stronger private consumption. This represents an upward revision of ½ percentage point in 2007 for both areas compared to the autumn. The EU as a whole is predicted to create almost 9 million new jobs over the period 2006-2008, 6 million of which for the euro area alone. This will help to reduce EU unemployment to less than 7% in 2008 from 8¾% in 2005. Public finances will continue to improve, with the general government deficit forecast to fall to around 1% in both the EU and the euro area - a level not seen in many years. Inflation is expected to remain contained, although the outlook is for a slight pick-up of underlying inflation over the forecast horizon, mirroring the renewed increase in oil prices and the cyclical recovery. Commissioner Almunia is expected to call on ministers to help sustain the recovery by putting public finances firmly on a sounder footing and by pursuing the reform process. Only this way will governments be able to cut back public debts and help increase the growth potential before the ageing problem starts kicking in (for more information on Commission forecasts see IP/07/615 and full forecasts on following website:

http://ec.europa.eu/economy_finance/publications/european_economy/forecasts_en.htm

Maintaining price stability in the Economic and Monetary union requires appropriate national fiscal policies. In view of persisting inflation differentials in the euro area, ministers are expected to discuss to what extent fiscal policy decisions in individual Member States affect inflationary developments in the currency area as a whole. The Commission will underline the importance of the Stability and Growth Pact in ensuring that national fiscal policies contribute to a balanced and stable economic development in the euro area. It will recall that budgetary targets should be based on cautious economic assumptions and that budgetary windfalls should be used to speed up fiscal consolidation.

As a follow-up to the March Eurogroup discussion, Ministers will also examine changes in the financial systems of euro area Member States which would contribute to a more homogenous transmission of monetary policy within the euro area. EMU has made the monetary policy transmission more uniform across countries, in particular through the interest rate channel. Nevertheless, the remaining heterogeneity observed cross-country can to a large extent be explained by differences in financial structures and financial development. This discussion by ministers can be seen in the broader context of promoting financial integration as a means to smooth economic adjustment in the euro-area economy.

Ministers will then discuss how labour mobility can contribute to an efficient adjustment in EMU. Geographic labour mobility can play an important role as an adjustment mechanism in EMU, especially in the event of permanent shocks requiring a reallocation of production factors such as a decline in the working age population due to ageing; sectoral and structural changes related to globalisation or technological change; or regional differences in structural unemployment. Currently, the scale of labour mobility within and between euro area Member States is relatively small. On average, only about 2 per cent of non-nationals originate from another EU Member State. Removing the disincentives to mobility would go some way towards increasing this level.

ECOFIN COUNCIL

The Council of Economics and Finance Ministers will start at 11.00 hrs on Tuesday 8 May). The European Commission will be represented by Economic and Monetary Affairs Commissioner Joaquín Almunia, Internal Market Commissioner Charlie McCreevy and Financial programming and Budget Commissioner Dalia Grybauskaite. A press conference is expected to take place before lunch.

Over breakfast, Ministers will discuss the economic situation and outlook on the basis of the latest macroeconomic forecast, released by the Commission today (see above).

Ministerial dialogue with Candidate countries (AT)

Once a year ECOFIN meets the Ministers of Finance of the candidate countries (presently three, namely Croatia, the former Yugoslav Republic of Macedonia and Turkey). The main purpose is to exchange views and information on medium-term economic policies in the EU and in the candidate countries in view of the candidate countries' gradual economic integration in the EU. This year's meeting will be devoted mainly to a discussion on the basis of the latest annual Pre-accession Economic Programmes of the candidate countries, which were submitted on 1 December 2006[1]. This discussion has been prepared by detailed assessments by the European Commission and the European Central Bank and by preparatory meetings in April between candidate countries, Member States, the Commission and the ECB. The Ministerial Meeting will adopt Joint Ministerial Conclusions, which will be published thereafter. These conclusions will mainly contain an assessment of the respective Pre-Accession Economic Programmes of the candidate countries, and their underlying economic policies. They will also endorse an updated action plan on statistics, calling the candidate countries to further improving their statistical data as a basis for economic policies.

Proposed Budget 2008: Growth and employment at the heart of EU spending (RS)

The Commission's key message in its budget proposals for 2008, adopted by the College on the 2nd of May, is that for the first time, spending on growth and employment policies will represent a higher share of the budget than agriculture and natural resources.

Adoption of the Preliminary Draft Budget (PDB) for 2008 by the Commission was the first step in the budgetary procedure. On the 8th of May Commissioner Dalia Grybauskaite will make the presentation of the PDB to the Council. On the 13th of July there will be a conciliation meeting between the Council and the European Parliament and a first reading of the budget by the Council. Final adoption of the 2008 EU budget is expected during the December session of the European Parliament (10-13 December).

The proposed budget for 2008 increases commitment appropriations by a moderate 2% from 2007 to EUR 129.2 billion and payment appropriations by 5.3% to EUR 121.6 billion. Commitment appropriations in the PDB are at the level of 1.03% of EU Gross National Income (GNI), and payment appropriations at 0.97% of GNI only. Spending on growth and employment policies increases by +4.2% compared to 2007, to reach 44.2% of the budget, against 43.6% for the protection and management of natural resources, including the Common Agricultural policy.

Sustainable growth (heading 1): EUR 57.2 billion will be spent on policies related to growth and employment, increasing research expenditure (+11%), investments in trans-European energy and transport networks (+14%), and lifelong learning programmes (+9%). New cohesion programmes will increase by almost EUR 1.4 billion, (+3.1%).

Preservation and management of natural resources (heading 2): EUR 56.3 billion, comparable to 2007, gradual shifts in market related expenditure and direct aid to farmers decreasing by 0.5% to EUR 42.5 billion. Rural development will grow to more than EUR 12.5 billion (+1.6%). Environmental protection programme increases to EUR 267 million (+11%).

Freedom, security and justice (heading 3a): EUR 691 million (+10.8%), the most significant being the management of migration flows, EUR 390 million (+24%). Citizenship (heading 3b): EUR 600 million (+11%, excluding the transition facility for Romania and Bulgaria, and the mobilisation of the Solidarity Fund). Specifically public and health and consumer protection programme increases by 15%, Europe for citizens programme by 18% and the Media programme by almost 21%.

EU as a global player (heading 4): EUR 6.9 billion (+1.5%) will help sustain the EU's influence on the global stage. The Common and Foreign Security Policy exceeds EUR 200 million (+26%).

Administration, (heading 5): EUR 7.3 billion (+5.7%) covers administrative costs for all EU institutions.

Financial Market (OD)

a) Hedge funds

Ministers will be invited to adopt Council conclusions on hedge funds. The Commission considers that these conclusions are well balanced reflecting the significant contribution of hedge funds to the efficiency of the financial system whilst recalling the need for all stakeholders – authorities, creditors and investors – to be vigilant in assessing hedge fund risks.

b) White paper on asset management, no debate expected

Ministers will be invited to adopt Council conclusions on the Commission's White Paper on asset management (see IP/06/1569). The Commission welcomes these conclusions and considers them to be supportive of the White Paper's aims.

c) Ageing and financial markets, no debate expected

Ministers will be invited to adopt Council conclusions on ageing and financial markets that identify a certain number of key issues for the future. The Commission fully supports these conclusions and will use them as a basis for its work.

d) Lamfalussy process

Ministers will be invited to exchange views on the possible priorities for the revision of the functioning of the Lamfalussy process in 2007-8. The discussion will be based in particular on the findings of the second interim report by the Inter Institutional Monitoring Group (IIMG), in the presence of Mr ACKERHOLM (chair of the IIMG). The Lamfalussy process aims to create a more efficient system for the EU institutions to prepare, adopt and implement new legislation to integrate financial markets.


[1] Croatia: http://www.mfin.hr/download.php?id=1046;
The former Yugoslav Republic of Macedonia:
http://www.finance.gov.mk/mk/mp/pre-accession_economic_programme_macedonia.pdf;
Turkey: http://ekutup.dpt.gov.tr/ab/kep/PEP2006.pdf


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